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A Retrospective on Friedman's Theory of Permanent Income

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  • Costas Meghir

Abstract

Friedman's book on the consumption function is one of the great works of Economics demonstrating how the interplay between theoretical ideas and data analysis can lead to major policy implications. We present a short review of Friedman's permanent income hypothesis, the origins of the idea and its theoretical foundations. We give a brief overview of its influence in modern economics and discuss some relevant empirical results and the way they relate to the original approach taken by Friedman. Copyright 2004 Royal Economic Society.

Suggested Citation

  • Costas Meghir, 2004. "A Retrospective on Friedman's Theory of Permanent Income," Economic Journal, Royal Economic Society, vol. 114(496), pages 293-306, June.
  • Handle: RePEc:ecj:econjl:v:114:y:2004:i:496:p:f293-f306
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    References listed on IDEAS

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    1. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-399, April.
    2. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
    3. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-445, March.
    4. Griliches, Zvi, 1977. "Estimating the Returns to Schooling: Some Econometric Problems," Econometrica, Econometric Society, vol. 45(1), pages 1-22, January.
    5. Peter Gottschalk & Robert Moffitt, 1994. "The Growth of Earnings Instability in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 217-272.
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    Citations

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    Cited by:

    1. Meghir, Costas & Pistaferri, Luigi, 2011. "Earnings, Consumption and Life Cycle Choices," Handbook of Labor Economics, Elsevier.
    2. Andreas Knabe & Steffen Ratzel, 2011. "Quantifying the psychological costs of unemployment: the role of permanent income," Applied Economics, Taylor & Francis Journals, vol. 43(21), pages 2751-2763.
    3. Stijn Claessens & M Ayhan Kose, 2017. "Asset prices and macroeconomic outcomes: a survey," BIS Working Papers 676, Bank for International Settlements.
    4. Rolf Aaberge & Magne Mogstad, 2009. "On the Measurement of Long-Term Income Inequality and Income Mobility," ICER Working Papers 09-2009, ICER - International Centre for Economic Research.
    5. Lothar Essig, 2005. "Precautionary saving and old-age provisions: Do subjective saving motive measures work?," MEA discussion paper series 05084, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    6. Keshab Bhattarai, 2005. "Consumption, investment and financial intermediation in a Ramsey model," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 1(6), pages 329-333, November.
    7. Essig, Lothar, 2005. "Precautionary saving and old-age provisions : do subjective saving motives measures work?," Papers 05-22, Sonderforschungsbreich 504.
    8. Quan Gan & Robert J. Hill, 2008. "A New Perspective on the Relationship Between House Prices and Income," Discussion Papers 2008-13, School of Economics, The University of New South Wales.
    9. van Kippersluis, Hans & Galama, Titus J., 2014. "Wealth and health behavior: Testing the concept of a health cost," European Economic Review, Elsevier, vol. 72(C), pages 197-220.
    10. Sophia Kan, 2016. "Improving health in Tajikistan: remittances trump other income," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 206, Courant Research Centre PEG.
    11. Essig, Lothar, 2004. "Precautionary saving and old-age provisions: Do subjective saving motives measures work?," Sonderforschungsbereich 504 Publications 05-22, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.

    More about this item

    JEL classification:

    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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